Value is a tricky thing when it comes to investing. How do you place a value on a stock? It is not an easy question to answer, and in all fairness it is all very subjective and there is no clear cut answer.
A stocks true value is simply the price that the market is willing to pay for it. If Wall Street is excited about a stocks current and future business, the market will drive the price higher. On the other hand, if the market expects economic conditions to weaken and a company’s growth to slow, or even worse shrink, then a stock will move lower.
Stocks trade relative to their earnings. Most investors judge a stocks value in terms of its price to earnings. If a company is expected to grow earnings moving forward, the market will drive up the price to a higher P/E ratio, while stocks that are experiencing stagnant or negative earnings growth will tend to trade with lower P/E ratios since the stock price will have to fall as earnings decline in order to maintain the same ratio.
To find stocks that have the most value, you need to look for stocks that have low P/E ratios with strong growth prospects. This will lead to the stock’s price moving higher as earnings grow in order to maintain the same valuation as current time. If the market believes a stock’s real value is a P/E of 18, then the stock will have to move higher to maintain that valuation as the earnings move higher.
Here are five stocks that appear to be undervalued and could be considered to be strong buy candidates at this time.